INDICATORS OF THE COFFEE INDUSTRY IN BRAZIL

This result places the Brazilian consumption per inhabitant/year (5.53 kg/inhabitant/year) at levels very similar to those of countries such as Germany (5.86 kg/inhabitant/year), France (5.07 kg/inhabitant/year) and Italy (5.63 kg/inhabitant/year) which are among those that have the largest consumption per capita in the whole world, according to data from ICO – International Coffee Organization.

In Brazil, domestic consumption evolved 24.8% since 2003, from 13.7 million bags to the current 17.1 million bags. Furthermore, the Brazilian market represents 14% of world coffee demand, and 32% of the whole Europe consumption, including the Eastern Europe countries. We continue to represent more than 50% of the whole domestic consumption of coffee producing countries.

Again this year, for the fifth consecutive time, ABIC considered that the growth of non-associated and informal companies was smaller (2.85%) than of the associated companies (5.63%). The survey allocates to those companies a variation equal to half the Brazilian GDP growth. This hypothesis is favorable to the reliability of the data, since it brings the final figure to smaller values.

The Importance of domestic consumption in coffee production
The 17.1 million bag consumption in 2007 represented 50.8% of the crop picked during that year, which was of 33.7 million bags according to CONAB. The amount is also very close to ABIC’s forecasts and expectations for 2007, which were 17.4 million bags.

For 2008, the domestic consumption growth together with exports of around 28 million bags, will result in a total demand of almost 46 million bags. Consequently, even considering the new 2007/2008 crop of large volume, ABIC understands that there will be no excess beans, especially because the physical stocks until March 2008 will be at their lowest levels in the last decades. Therefore, measures to restrict the coffee offer to the market would not be justified.

ABIC will continue to pursue the target of meeting the 21-million bag goal by 2010. For this domestic consumption should grow at an average rate of 6% a year, adding another 1.1 million bags every 12 months. In the coming years the entity intends to increase and consolidate the Superior, Gourmet and Specialty coffee markets, to meet the increasingly more evident demand among Brazilian consumers, even among those products with higher added value. Consequently, in 2007, ABIC expanded the range of its quality and certification programs to allow industries to have a firmer insertion in the unique high quality coffee product market.

With this result, Brazil maintains an important position in the world scenario of the coffee agribusiness, since it is one of the countries where domestic coffee consumption growth is expanding the most. This is one of the most effective forms of giving sustainability to world coffee production, therefore not allowing any coffee bean surpluses, which would make coffee quotes drop to prices that would not adequately remunerate the coffee productive chain agents.

The reasons for consumption expansion
ABIC attributes consumption expansion to a series of consistent and long lasting factors that repeat themselves year after year, such as:

    Continuous improvement of the quality of coffee offered to consumers, which increased with the Coffee Quality Program (Programa da Qualidade do Café – PQC), launched by ABIC at the end of 2004, and that currently already certifies over 250 brands Brazilwide; In 2008, PQC is complemented with the Sustainable Coffee Program of Brazil (Programa Cafés Sustentáveis do Brasil), which offers a complete certification guarantee, from planting to the cup, to sustainably produced coffees. Furthermore, the coffee shops now have a qualification program, the Quality Coffee Circle (Círculo do Café de Qualidade – CCQ), with which ABIC wants to stimulate coffee consumption away from home, always with the best quality;

    Consolidation of the Gourmet or Specialty coffee markets, and expansion of the away from home consumption, that are increasingly attracting more attention, interest and curiosity among consumers;

    Significant improvement in the perception of coffee regarding its benefits to health, as a result of large investments in the Coffee and Health Program supported by the whole agribusiness;

    Better economic conditions in Brazil, with consumption and purchasing power improvement, expansion of wage and salary mass, employability, and larger participation of consumers that migrated from classes D and E to class C.

Consumption trends
In 2007, according to the survey “Coffee Consumption Trends in Brazil”, 91% of those interviewed said they were coffee consumers. This percentage was 94% in 2006, however the survey was expanded to smaller cities and those of the Brazilian interior in several states, and that justifies the penetration reduction, but it is one of the highest among the various categories of food and beverage products. Hence, coffee penetration remained stable since 2003 and above 91%, and the survey showed an important evolution of other categories, such as chocolate drinks, juices and coconut milk that although selling less in volume were in prominent positions in the consumption survey for 2007.

Coffee consumption in class A continues to expand, because of the offer of coffees of the Gourmet type of coffees, better coffee quality and more value, as well as influenced by consumption away from home in coffee shops and coffee houses.

Consumption among teenagers between 15 and 19 years old continue to be a challenge for the coffee industry. In this age bracket, figures did not increase.

Consumers’ positive perception of coffee still needs to be approached in more depth. Among consumers (91%) the reasons to reduce coffee consumption due to health problems, increased to 47% in 2007, after registering 33% in 2006. On the other hand, the medical community demonstrated a substantial improvement in their perception of coffee. The survey shows that their recommendations to reduce coffee consumption decreased from 12% in 2006 to 7% in 2007. This demonstrates the good influence of the Coffee and Health Program, developed by ABIC together with DCAF – Coffee department of the Ministry of Agriculture, with the approval of the CDPC – Coffee Policy Decision-Making Council (Conselho Deliberativo da Politica do Café – CDPC).

Consumption away from home continues to expand in coffee shops, coffee houses, restaurants, bakeries, etc. The survey shows that in the large capital cities it expanded from 32% in 2006 to 36% in 2007.

In 2008, strong coffee- shop expansion will continue in the whole Country, as will the expansion of foreign companies’ coffee shops that have recently arrived in São Paulo. The Brazilian domestic market is ripe to assimilate innovations and new products.

Investments in Advertising and Promotion
Promotion and marketing investments continue to be very important to ensure coffee consumption. In 2007, coffee companies expanded their investments in marketing and advertising. Large companies made major campaigns in several medias investing more than R$50 million. ABIC invested R$630,000 of its Marketing Fund in additional institutional actions.

The 2007 Integrated Marketing Program – (2007 PIM) of the Ministry of Agriculture, Livestock and Food Supply (Ministério da Agricultura, Pecuária e Abastecimento) coordinated by DCAF – Coffee Department of the Secretariat of Production and Agroenergy (Secretaria de Produção e Agroenergia), has access to funds from FUNCAFE and invested only R$2.2 million in the domestic market, because of the reduction of government’s advertising funds, but invested R$5 million to promote coffee abroad, with important participation in fairs, coffee tasting and events in Japan, Korea, the USA, Germany, Rumania, Chile and other countries, in addition to producing various promotion and information materials about Cafés do Brasil.

These programs had a fundamental importance in promoting coffee domestically and abroad, such as in developing the Coffee and Health Program, the purpose of which is to generate information and knowledge for the scientific and medical communities, and to consumers in general, about the benefits of daily and moderate intake of coffee for human health.

During the 2007 PAN RIO (Pan-American Games) in Rio de Janeiro, a large promotion action was carried out on the benefits of coffee to health, whose theme was “Coffee is also Health”. During 30 days, the theme was aired by radio stations, in direct contact with the public in coffee shops, and especially in sports stadiums where the 2007 Pan Rio Competitions were held.

Also important were the Cafés do Brasil Road Shows that visited 13 capital cities and large Brazilian cities and was installed in shopping malls disseminating instructive materials, information and knowledge about coffee, from the plantation to how to prepare it in many types of coffee pots, in addition to tips about the differences in flavor and aroma resulting from roasting points and different grindings. This action was also the result of an agreement between ABIC and MAPA-DCAF.

More concentration in the industry
The roasting industry concentration continues as in prior years. The 5 largest companies participated with 37.84% of the total market of roasted/ground coffees, against 36.93% in the previous year. The 100 largest companies expanded their participation to 62.72% from 61.94% in the previous year. Considering the industrialized volume by the companies that ABIC associates only (almost 11 million bags in 2007), but the 10 largest companies were responsible for 70.2% of the coffee production, while the 35 largest concentrated almost 85% of the production. The smaller companies ABIC associates, 331 in total, were responsible for only 7.89% of production. The number of companies in the industry is growing. In 2005, ABIC listed 1171 companies in Brazil, but in 2007, this number rose to 1222 (companies that ABIC was able to locate and collect samples of their products).

Perspectives for 2008
For 2008, ABIC expects that domestic consumption will reach 18.1 million bags. The average price to consumers may evolve according to the cost increase of green beans; however it is expected that it will remain stable during the year. In 2007, consumer prices increased only an average of 9.5%. Industry sales reached R$6.4 billion in 2007 against R$5.4 billion in 2006. For 2008, it is forecasted that they will arrive at R$6.8 billion.

ABIC believes that its various coffee quality programs and consumer education programs will be consolidated in 2008, and will drive coffee consumption and demand for coffees with higher added value. They are: Purity Seal; PQC – Coffee Quality Program; CCQ – Quality Coffee Circle; PCS – Sustainable Coffees of Brazil; and Coffee with School Meals, Health in School.

The threats to consumption increase
ABIC sees some threats to the sector performance and for consumption in 2008. They are concentrated in the uncertainties as to the availability of the raw material (green beans), since the Brazilian physical stocks are at very low levels. The crop that will be harvested – even if it is between 46 to 48 million bags – will be totally demanded for exports and domestic consumption. It is expected that the market will be tight and with few offers. Therefore, ABIC understands that there is no justification to adopt any artificial measure to restrict the offer of beans to the market, as mentioned by a few, some months ago. Hence, even with official stocks totally zeroed, the entity understands that restoring them should not be discussed.

Need for a long term plan for the development of the Cafés do Brasil agribusiness
“Challenges to overcome the threats to coffee agribusiness, from plantation to consumer, are many. They include the increase in coffee production productivity to improve its competitiveness and profitability, with the insertion of family agriculture and of most small coffee growers, the strategic positioning of Brazil in the world coffee market, investments in innovation and renewal of the industrial complex, to conquer new markets for higher priced products and to define instruments that ensure exports expansion and domestic consumption, with equivalent advantages to all sectors of the productive chain. ABIC and the coffee industry understand that Cafés do Brasil cannot put up with an administration that is always carried out through emergency measures and propose that a broad development plan for the coffee agribusiness be prepared, contemplating the goals and needs of all sectors of the productive chain during the next 10 years, to ensure all agents economic sustainability, and to consolidate Brazil’s world leadership in the world coffee business”, says the President of ABIC, Guivan Bueno.